Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-34726
LYONDELLBASELL INDUSTRIES N.V.
(Exact name of registrant as specified in its charter)
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| | | | |
The Netherlands | | | | 98-0646235 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
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1221 McKinney St., Suite 300 Houston, Texas USA 77010 | | 4th Floor, One Vine Street London W1J0AH The United Kingdom | | Delftseplein 27E 3013 AA Rotterdam The Netherlands |
(Addresses of registrant’s principal executive offices)
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(713) 309-7200 | | +44 (0) 207 220 2600 | | +31 (0)10 275 5500 |
(Registrant’s telephone numbers, including area codes) |
| | | | |
Title of Each Class | | Trading Symbol | | Name of Each Exchange On Which Registered |
Ordinary Shares, €0.04 Par Value | | LYB | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Emerging growth company | ¨ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
The registrant had 370,327,226 ordinary shares, €0.04 par value, outstanding at April 24, 2019 (excluding 29,883,054 treasury shares).
LYONDELLBASELL INDUSTRIES N.V.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF INCOME
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| | | | | | | |
| Three Months Ended
March 31, |
Millions of dollars, except earnings per share | 2019 | | 2018 |
Sales and other operating revenues: | | | |
Trade | $ | 8,565 |
| | $ | 9,530 |
|
Related parties | 213 |
| | 237 |
|
| 8,778 |
| | 9,767 |
|
Operating costs and expenses: | | | |
Cost of sales | 7,446 |
| | 8,012 |
|
Selling, general and administrative expenses | 287 |
| | 233 |
|
Research and development expenses | 28 |
| | 28 |
|
| 7,761 |
| | 8,273 |
|
Operating income | 1,017 |
| | 1,494 |
|
Interest expense | (92 | ) | | (91 | ) |
Interest income | 6 |
| | 11 |
|
Other income, net | 25 |
| | 24 |
|
Income before equity investments and income taxes | 956 |
| | 1,438 |
|
Income from equity investments | 64 |
| | 96 |
|
Income before income taxes | 1,020 |
| | 1,534 |
|
Provision for income taxes | 203 |
| | 303 |
|
Net income | 817 |
| | 1,231 |
|
Dividends on A. Schulman Special Stock | (2 | ) | | — |
|
Net income attributable to the Company shareholders | $ | 815 |
| | $ | 1,231 |
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| | | |
Earnings per share: | | | |
Net income attributable to the Company shareholders — | | | |
Basic | $ | 2.19 |
| | $ | 3.12 |
|
Diluted | $ | 2.19 |
| | $ | 3.11 |
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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| | | | | | | | |
| | Three Months Ended
March 31, |
Millions of dollars | | 2019 | | 2018 |
Net income | | $ | 817 |
| | $ | 1,231 |
|
Other comprehensive income (loss), net of tax – | | | | |
Financial derivatives | | (50 | ) | | 7 |
|
Defined benefit pension and other postretirement benefit plans | | 5 |
| | 7 |
|
Foreign currency translations | | (10 | ) | | 40 |
|
Total other comprehensive income (loss), net of tax | | (55 | ) | | 54 |
|
Comprehensive income | | 762 |
| | 1,285 |
|
Dividends on A. Schulman Special Stock | | (2 | ) | | — |
|
Comprehensive income attributable to the Company shareholders | | $ | 760 |
| | $ | 1,285 |
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
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| | | | | | | |
Millions of dollars | March 31,
2019 | | December 31,
2018 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 339 |
| | $ | 332 |
|
Restricted cash | 19 |
| | 69 |
|
Short-term investments | 423 |
| | 892 |
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Accounts receivable: | | | |
Trade, net | 3,508 |
| | 3,355 |
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Related parties | 172 |
| | 148 |
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Inventories | 4,496 |
| | 4,515 |
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Prepaid expenses and other current assets | 1,329 |
| | 1,255 |
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Total current assets | 10,286 |
| | 10,566 |
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Operating lease assets | 1,534 |
| | — |
|
Property, plant and equipment at cost | 19,244 |
| | 18,701 |
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Less: Accumulated depreciation | (6,447 | ) | | (6,224 | ) |
Property, plant and equipment, net | 12,797 |
| | 12,477 |
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Investments and long-term receivables: | | | |
Investment in PO joint ventures | 464 |
| | 469 |
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Equity investments | 1,650 |
| | 1,611 |
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Other investments and long-term receivables | 23 |
| | 23 |
|
Goodwill | 1,803 |
| | 1,814 |
|
Intangible assets, net | 945 |
| | 965 |
|
Other assets | 387 |
| | 353 |
|
Total assets | $ | 29,889 |
| | $ | 28,278 |
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED BALANCE SHEETS
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| | | | | | | |
Millions of dollars, except shares and par value data | March 31,
2019 | | December 31,
2018 |
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 5 |
| | $ | 5 |
|
Short-term debt | 2,377 |
| | 885 |
|
Accounts payable: | | | |
Trade | 2,610 |
| | 2,560 |
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Related parties | 577 |
| | 527 |
|
Accrued liabilities | 1,443 |
| | 1,536 |
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Total current liabilities | 7,012 |
| | 5,513 |
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Long-term debt | 7,522 |
| | 8,497 |
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Operating lease liabilities | 1,282 |
| | — |
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Other liabilities | 1,830 |
| | 1,897 |
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Deferred income taxes | 1,967 |
| | 1,975 |
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Commitments and contingencies |
| |
|
Redeemable non-controlling interests | 116 |
| | 116 |
|
Stockholders’ equity: | | | |
Ordinary shares, €0.04 par value, 1,275 million shares authorized, 370,326,103 and 375,696,661 shares outstanding, respectively | 22 |
| | 22 |
|
Additional paid-in capital | 6,996 |
| | 7,041 |
|
Retained earnings | 7,206 |
| | 6,763 |
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Accumulated other comprehensive loss | (1,418 | ) | | (1,363 | ) |
Treasury stock, at cost, 29,884,177 and 24,513,619 ordinary shares, respectively | (2,668 | ) | | (2,206 | ) |
Total Company share of stockholders’ equity | 10,138 |
| | 10,257 |
|
Non-controlling interests | 22 |
| | 23 |
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Total equity | 10,160 |
| | 10,280 |
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Total liabilities, redeemable non-controlling interests and equity | $ | 29,889 |
| | $ | 28,278 |
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| | | | | | | |
| Three Months Ended
March 31, |
Millions of dollars | 2019 | | 2018 |
Cash flows from operating activities: | | | |
Net income | $ | 817 |
| | $ | 1,231 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 322 |
| | 299 |
|
Amortization of debt-related costs | 1 |
| | 4 |
|
Share-based compensation | 12 |
| | 9 |
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Equity investments – | | | |
Equity income | (64 | ) | | (96 | ) |
Distributions of earnings, net of tax | 25 |
| | — |
|
Deferred income taxes | 46 |
| | 61 |
|
Changes in assets and liabilities that provided (used) cash: | | | |
Accounts receivable | (206 | ) | | (196 | ) |
Inventories | (3 | ) | | (55 | ) |
Accounts payable | 105 |
| | 72 |
|
Other, net | (398 | ) | | (323 | ) |
Net cash provided by operating activities | 657 |
| | 1,006 |
|
Cash flows from investing activities: | | | |
Expenditures for property, plant and equipment | (599 | ) | | (429 | ) |
Purchases of available-for-sale debt securities | — |
| | (50 | ) |
Proceeds from sales and maturities of available-for-sale debt securities | 308 |
| | 335 |
|
Proceeds from sales and maturities of equity securities | 162 |
| | — |
|
Other, net | (49 | ) | | (45 | ) |
Net cash used in investing activities | (178 | ) | | (189 | ) |
Cash flows from financing activities: | | | |
Repurchases of Company ordinary shares | (512 | ) | | (119 | ) |
Dividends paid - common stock | (372 | ) | | (395 | ) |
Purchase of non-controlling interest | (63 | ) | | — |
|
Issuance of short-term debt | 2,000 |
| | — |
|
Repayment of long-term debt | (1,000 | ) | | — |
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Net repayments of commercial paper | (559 | ) | | — |
|
Other, net | (15 | ) | | (6 | ) |
Net cash used in financing activities | (521 | ) | | (520 | ) |
Effect of exchange rate changes on cash | (1 | ) | | 15 |
|
(Decrease) increase in cash and cash equivalents and restricted cash | (43 | ) | | 312 |
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Cash and cash equivalents and restricted cash at beginning of period | 401 |
| | 1,528 |
|
Cash and cash equivalents and restricted cash at end of period | $ | 358 |
| | $ | 1,840 |
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See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Company Share of Stockholders’ Equity | | Non- Controlling Interests |
Millions of dollars | Issued | | Treasury | |
Balance, December 31, 2018 | $ | 22 |
| | $ | (2,206 | ) | | $ | 7,041 |
| | $ | 6,763 |
| | $ | (1,363 | ) | | $ | 10,257 |
| | $ | 23 |
|
Net income | — |
| | — |
| | — |
| | 817 |
| | — |
| | 817 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (55 | ) | | (55 | ) | | — |
|
Share-based compensation | — |
| | 26 |
| | 2 |
| | — |
| | — |
| | 28 |
| | — |
|
Dividends - common stock ($1.00 per share) | — |
| | — |
| | — |
| | (372 | ) | | — |
| | (372 | ) | | — |
|
Dividends - A. Schulman Special Stock ($15.00 per share) | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
|
Repurchases of Company ordinary shares | — |
| | (488 | ) | | — |
| | — |
| | — |
| | (488 | ) | | — |
|
Purchase of non-controlling interest | — |
| | — |
| | (47 | ) | | — |
| | — |
| | (47 | ) | | (1 | ) |
Balance, March 31, 2019 | $ | 22 |
| | $ | (2,668 | ) | | $ | 6,996 |
| | $ | 7,206 |
| | $ | (1,418 | ) | | $ | 10,138 |
| | $ | 22 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Company Share of Stockholders’ Equity | | Non- Controlling Interests |
Millions of dollars | Issued | | Treasury | |
Balance, December 31, 2017 | $ | 31 |
| | $ | (15,749 | ) | | $ | 10,206 |
| | $ | 15,746 |
| | $ | (1,285 | ) | | $ | 8,949 |
| | $ | 1 |
|
Adoption of accounting standards | — |
| | — |
| | — |
| | 95 |
| | (70 | ) | | 25 |
| | — |
|
Net income | — |
| | — |
| | — |
| | 1,231 |
| | — |
| | 1,231 |
| | — |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 54 |
| | 54 |
| | — |
|
Share-based compensation | — |
| | 22 |
| | 8 |
| | — |
| | — |
| | 30 |
| | — |
|
Dividends - common stock ($1.00 per share) | — |
| | — |
| | — |
| | (395 | ) | | — |
| | (395 | ) | | — |
|
Repurchases of Company ordinary shares | — |
| | (138 | ) | | — |
| | — |
| | — |
| | (138 | ) | | — |
|
Purchase of non-controlling interest | — |
| | — |
| | (28 | ) | | — |
| | — |
| | (28 | ) | | — |
|
Balance, March 31, 2018 | $ | 31 |
| | $ | (15,865 | ) | | $ | 10,186 |
| | $ | 16,677 |
| | $ | (1,301 | ) | | $ | 9,728 |
| | $ | 1 |
|
See Notes to the Consolidated Financial Statements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
LyondellBasell Industries N.V., together with its consolidated subsidiaries (collectively “LyondellBasell N.V.”), is a worldwide manufacturer of chemicals and polymers, a refiner of crude oil, a significant producer of gasoline blending components and a developer and licensor of technologies for production of polymers. Unless otherwise indicated, the “Company,” “we,” “us,” “our” or similar words are used to refer to LyondellBasell N.V.
The accompanying Consolidated Financial Statements are unaudited and have been prepared from the books and records of LyondellBasell N.V. in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In our opinion, all adjustments, including normal recurring adjustments, considered necessary for a fair statement have been included. The results for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
2. Accounting and Reporting Changes |
| | | |
Standard | Description | Period of Adoption | Effect on the Consolidated Financial Statements |
Recently Adopted Guidance |
ASU 2016-02, Leases (Topic 842) (including subsequent amendments: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, ASU 2018-11, Leases, Targeted Improvements, and ASU 2019-01, Leases Codification Improvements) | The new guidance establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term greater than 12 months. Leases are classified as finance or operating, with classification affecting the timing and classification of expense recognition. This guidance also enhances disclosure requirements and is effective for public entities for annual periods beginning after December 15, 2018. | First quarter of 2019 | See Note 8 for disclosures related to the adoption of this guidance. |
ASU 2018-09, Codification Improvements
| This guidance makes minor improvements in various subtopics. Many of the amendments within the ASU do not require transition and are effective upon issuance. However, some amendments are not effective until fiscal years beginning after December 15, 2018. | First quarter of 2019
| The adoption of the new guidance did not have a material impact on our Consolidated Financial Statements.
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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| | | |
Standard | Description | Period of Adoption | Effect on the Consolidated Financial Statements |
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | This amendment requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, resulting in the use of a current expected credit loss (“CECL”) model when measuring an impairment of financial instruments. Credit losses related to available-for-sale securities should be recorded in the consolidated income statement through an allowance for credit losses. Estimated credit losses utilizing the CECL model are based on historical experience, current conditions and forecasts that affect collectability. This ASU also modifies the impairment model for available-for-sale debt securities by eliminating the concept of “other than temporary” as well as providing a simplified accounting model for purchased financial assets with credit deterioration since their origination. The guidance will be effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. | First quarter of 2019 (early adopted) | The adoption of the new guidance did not have a material impact on our Consolidated Financial Statements.
|
Accounting Guidance Issued But Not Adopted as of March 31, 2019 |
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Change to the Disclosure Requirements for Fair Value Measurement | This guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. It removes transfer disclosures between Level 1 and Level 2 of the fair value hierarchy, and adds disclosures for the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. | January 1, 2020
| We are currently assessing the impact of this guidance on our Consolidated Financial Statements. |
ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans | This guidance changes disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. It eliminates the requirement of certain disclosures that are no longer considered cost beneficial; however, it adds more pertinent disclosures. The guidance will be effective for public entities for annual periods ending after December 15, 2020. Early adoption is permitted. | January 1, 2021
| We are currently assessing the impact of this guidance on our Consolidated Financial Statements.
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LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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| | | |
Standard | Description | Period of Adoption | Effect on the Consolidated Financial Statements |
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract | This guidance requires a customer in a hosted, cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized costs are amortized over the term of the hosting arrangement when the recognized asset is ready for its intended use. The guidance will be effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. | January 1, 2020
| We are currently assessing the impact of this guidance on our Consolidated Financial Statements.
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3. Business Combination
On August 21, 2018, we acquired all of the outstanding common stock of A. Schulman Inc., a Delaware corporation, for an aggregate purchase price of approximately $1,940 million.
The purchase price was allocated based on the fair value of the acquired assets and liabilities, redeemable noncontrolling interests and noncontrolling interests assumed on the acquisition date. The allocation is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations is obtained. The primary areas of the preliminary purchase price allocation that have not been finalized relate to the fair value of property, plant and equipment, intangible assets, contingencies and the related impacts on deferred income taxes and cumulative translation adjustments. There were no material purchase price adjustments recorded during the three months ended March 31, 2019.
4. Revenues
Contract Balances—Contract liabilities were $195 million and $138 million at March 31, 2019 and December 31, 2018, respectively. Revenue recognized in the reporting period, included in the contract liability balance at the beginning of the period, was immaterial.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Disaggregation of Revenues—The following table presents our revenues disaggregated by key products for the three months ended March 31, 2019 and 2018, respectively:
|
| | | | | | | |
| Three Months Ended March 31, |
Millions of dollars | 2019 | | 2018 |
Sales and other operating revenues: | | | |
Olefins and co-products | $ | 748 |
| | $ | 1,020 |
|
Polyethylene | 1,666 |
| | 1,978 |
|
Polypropylene | 1,315 |
| | 1,520 |
|
PO and derivatives | 559 |
| | 649 |
|
Oxyfuels and related products | 664 |
| | 795 |
|
Intermediate chemicals | 609 |
| | 848 |
|
Compounding and solutions | 1,140 |
| | 609 |
|
Advanced polymers | 198 |
| | 228 |
|
Refined products | 1,743 |
| | 2,002 |
|
Other | 136 |
| | 118 |
|
Total | $ | 8,778 |
| | $ | 9,767 |
|
The following table presents our revenues disaggregated by geography, based upon the location of the customer, for the three months ended March 31, 2019 and 2018, respectively:
|
| | | | | | | |
| Three Months Ended March 31, |
Millions of dollars | 2019 | | 2018 |
Sales and other operating revenues: | | | |
United States | $ | 3,893 |
| | $ | 4,653 |
|
Germany | 731 |
| | 821 |
|
Mexico | 528 |
| | 478 |
|
Italy | 387 |
| | 394 |
|
France | 362 |
| | 350 |
|
Japan | 203 |
| | 301 |
|
China | 298 |
| | 282 |
|
The Netherlands | 252 |
| | 276 |
|
Other | 2,124 |
| | 2,212 |
|
Total | $ | 8,778 |
| | $ | 9,767 |
|
5. Accounts Receivable
Our allowance for doubtful accounts receivable, which is reflected in the Consolidated Balance Sheets as a reduction of accounts receivable, totaled $15 million and $16 million at March 31, 2019 and December 31, 2018, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Inventories
Inventories consisted of the following components:
|
| | | | | | | |
Millions of dollars | March 31,
2019 | | December 31,
2018 |
Finished goods | $ | 3,010 |
| | $ | 3,066 |
|
Work-in-process | 215 |
| | 138 |
|
Raw materials and supplies | 1,271 |
| | 1,311 |
|
Total inventories | $ | 4,496 |
| | $ | 4,515 |
|
7. Debt
Long-term loans, notes and other long-term debt, net of unamortized discount and debt issuance cost, consisted of the following: |
| | | | | | | |
Millions of dollars | March 31,
2019 | | December 31,
2018 |
Senior Notes due 2019, $1,000 million, 5.0% | $ | — |
| | $ | 988 |
|
Senior Notes due 2021, $1,000 million, 6.0% ($5 million of debt issuance cost) | 982 |
| | 975 |
|
Senior Notes due 2024, $1,000 million, 5.75% ($6 million of debt issuance cost) | 994 |
| | 993 |
|
Senior Notes due 2055, $1,000 million, 4.625% ($16 million of discount; $11 million of debt issuance cost) | 973 |
| | 973 |
|
Term Loan due 2022, $4,000 million | — |
| | — |
|
Guaranteed Notes due 2022, €750 million, 1.875% ($2 million of discount; $2 million of debt issuance cost) | 840 |
| | 855 |
|
Guaranteed Notes due 2023, $750 million, 4.0% ($5 million of discount; $3 million of debt issuance cost) | 742 |
| | 742 |
|
Guaranteed Notes due 2027, $1,000 million, 3.5% ($8 million of discount; $7 million of debt issuance cost) | 986 |
| | 964 |
|
Guaranteed Notes due 2027, $300 million, 8.1% | 300 |
| | 300 |
|
Guaranteed Notes due 2043, $750 million, 5.25% ($20 million of discount; $7 million of debt issuance cost) | 723 |
| | 722 |
|
Guaranteed Notes due 2044, $1,000 million, 4.875% ($11 million of discount; $9 million of debt issuance cost) | 980 |
| | 980 |
|
Other | 7 |
| | 10 |
|
Total | 7,527 |
| | 8,502 |
|
Less current maturities | (5 | ) | | (5 | ) |
Long-term debt | $ | 7,522 |
| | $ | 8,497 |
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair value hedging adjustments associated with the fair value hedge accounting of our fixed-for-floating interest rate swaps for the applicable periods are as follows:
|
| | | | | | | | | | | | | | | | | |
| | Gains (Losses) | | Cumulative Fair Value Hedging Adjustments Included in Carrying Amount of Debt |
| Inception Year | | Three Months Ended
March 31, | | March 31, | | December 31, |
Millions of dollars | | 2019 | | 2018 | | 2019 | | 2018 |
Senior Notes due 2019, 5.0% | 2014 | | $ | (11 | ) | | $ | (1 | ) | | $ | — |
| | $ | 11 |
|
Senior Notes due 2021, 6.0% | 2016 | | (7 | ) | | 14 |
| | 13 |
| | 20 |
|
Guaranteed Notes due 2027, 3.5% | 2017 | | (22 | ) | | 31 |
| | (1 | ) | | 21 |
|
Guaranteed Notes due 2022, 1.875% | 2018 | | — |
| | — |
| | (1 | ) | | (1 | ) |
Total |
| | $ | (40 | ) | | $ | 44 |
| | $ | 11 |
| | $ | 51 |
|
The cumulative fair value hedging adjustments remaining at December 31, 2018 associated with our Senior Notes due 2019 included $7 million for hedges that were discontinued. Fair value adjustments are recognized in Interest expense in the Consolidated Statements of Income.
Short-term loans, notes, and other short-term debt consisted of the following:
|
| | | | | | | |
Millions of dollars | March 31,
2019 | | December 31,
2018 |
$2,000 million Term Loan | $ | 2,000 |
| | $ | — |
|
$2,500 million Senior Revolving Credit Facility | — |
| | — |
|
$900 million U.S. Receivables Facility | — |
| | — |
|
Commercial paper | 251 |
| | 809 |
|
Precious metal financings | 123 |
| | 71 |
|
Other | 3 |
| | 5 |
|
Total short-term debt | $ | 2,377 |
| | $ | 885 |
|
Long-Term Debt
Three-Year Term Loan due 2022—In March 2019, LYB Americas Finance Company LLC, a wholly owned subsidiary of LyondellBasell Industries N.V., entered into a three-year $4,000 million senior unsecured delayed draw term loan credit facility that matures in March 2022. Borrowings under the credit agreement may be made on up to six occasions by December 31, 2019. Proceeds under this credit agreement, which is fully and unconditionally guaranteed by LyondellBasell Industries. N.V., may be used for general corporate purposes.
Borrowings under the credit agreement bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell Industries N.V.’s current credit ratings.
The credit agreement contains customary representations and warranties and contains certain restrictive covenants regarding, among other things, secured indebtedness, subsidiary indebtedness, mergers and sales of assets. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Senior Notes due 2019—In February 2019, proceeds from the new senior unsecured term loan credit agreement discussed below were used to redeem the remaining $1,000 million outstanding of our 5% Senior Notes due 2019 at par. In conjunction with the redemption of these notes, we recognized non-cash charges of less than $1 million for unamortized debt issuance costs and $8 million for the write-off of the cumulative fair value hedge accounting adjustment related to the redeemed notes.
Short-Term Debt
Term Loan due 2020—In February 2019, LYB Americas Finance Company LLC (“LYB Americas Finance”), a wholly owned subsidiary of LyondellBasell Industries N.V., entered into a 364-day, $2,000 million senior unsecured term loan credit agreement and borrowed the entire amount. The proceeds of this term loan, which is fully and unconditionally guaranteed by LyondellBasell Industries N.V., are intended for general corporate purposes, including the repayment of debt.
Borrowings under the credit agreement will bear interest at either a base rate or LIBOR rate, as defined, plus in each case, an applicable margin determined by reference to LyondellBasell Industries N.V.’s current credit ratings.
The credit agreement contains customary covenants and warranties, including specified restrictions on indebtedness, including secured and subsidiary indebtedness, and merger and sales of assets. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
Senior Revolving Credit Facility—Our $2,500 million revolving credit facility, which expires in June 2022, may be used for dollar and euro denominated borrowings, has a $500 million sublimit for dollar and euro denominated letters of credit, a $1,000 million uncommitted accordion feature, and supports our commercial paper program. The aggregate balance of outstanding borrowings, including amounts outstanding under our commercial paper program, and letters of credit under this facility may not exceed $2,500 million at any given time. Borrowings under the facility bear interest at either a base rate or LIBOR rate, plus an applicable margin. Additional fees are incurred for the average daily unused commitments.
The facility contains customary covenants and warranties, including specified restrictions on indebtedness and liens. In addition, we are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters.
Commercial Paper Program—We have a commercial paper program under which we may issue up to $2,500 million of privately placed, unsecured, short-term promissory notes (“commercial paper”). This program is backed by our $2,500 million Senior Revolving Credit Facility. Proceeds from the issuance of commercial paper may be used for general corporate purposes, including dividends and share repurchases. Interest rates on the commercial paper outstanding at March 31, 2019 are based on the terms of the notes and range from 2.63% to 2.69%.
U.S. Receivables Facility—Our U.S. accounts receivable facility, which expires in July 2021, has a purchase limit of $900 million in addition to a $300 million uncommitted accordion feature. This facility provides liquidity through the sale or contribution of trade receivables by certain of our U.S. subsidiaries to a wholly owned, bankruptcy-remote subsidiary on an ongoing basis and without recourse. The bankruptcy-remote subsidiary may then, at its option and subject to a borrowing base of eligible receivables, sell undivided interests in the pool of trade receivables to financial institutions participating in the facility. In the event of liquidation, the bankruptcy-remote subsidiary’s assets will be used to satisfy the claims of its creditors prior to any assets or value in the bankruptcy-remote subsidiary becoming available to us. We are responsible for servicing the receivables. This facility also provides for the issuance of letters of credit up to $200 million. The term of the facility may be extended in accordance with the terms of the agreement. The facility is also subject to customary warranties and covenants, including limits and reserves and the maintenance of specified financial ratios. We are required to maintain a leverage ratio at the end of every fiscal quarter of 3.50 to 1.00, or less, for the period covering the most recent four quarters. Performance obligations under the facility are guaranteed by the parent company. Additional fees are incurred for the average daily unused commitments.
At March 31, 2019, there were no borrowings or letters of credit under the facility.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Weighted Average Interest Rate—At March 31, 2019 and December 31, 2018, our weighted average interest rate on outstanding short-term debt was 3.6% and 3.1%, respectively.
Debt Discount and Issuance Costs—For the three months ended March 31, 2019 and 2018, amortization of debt discounts and debt issuance costs resulted in amortization expense of $1 million and $4 million, respectively, which is included in Interest expense in the Consolidated Statements of Income.
Other Information—LYB International Finance III, LLC is a direct, 100% owned finance subsidiary of LyondellBasell N.V., as defined in Rule 3-10(b) of Regulation S-X. Any debt securities issued by LYB International Finance III, LLC will be fully and unconditionally guaranteed by LyondellBasell N.V.
As of March 31, 2019, we are in compliance with our debt covenants.
8. Leases
Adoption of the New Lease Accounting Guidance—On January 1, 2019, we adopted ASC 842, Leases and related amendments using the modified retrospective method. Upon adoption, we recognized Operating lease assets and Operating lease liabilities of $1,533 million and $1,553 million, respectively. We also reduced Accrued liabilities and Other liabilities by $2 million and $18 million, respectively. The adoption of this new guidance did not have a material impact on our Consolidated Statements of Income or Cash Flows.
We elected the practical expedients that permit us not to reassess our prior conclusions about lease identification, lease classification, initial direct costs and whether existing land easements that were not previously accounted for as leases under previous accounting standards are, or contain a lease under the new standard. We also elected the practical expedient to account for lease and associated non-lease components as a single lease component asset for all asset classes with the exception of utilities and pipeline assets within major manufacturing equipment, which do not have a material impact on our Consolidated Financial Statements.
Comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods.
At inception of a contract, we determine if the contract contains a lease. When a lease is identified, we recognize a right-of-use asset and a corresponding lease liability based on the present value of the lease payments over the lease term discounted using our incremental borrowing rate, unless an implicit rate is readily determinable. Lease payments include fixed and variable lease components. Variable components are derived from usage or market-based indices, such as the consumer price index. Options to extend or terminate the lease are reflected in the lease payments and lease term when it is reasonably certain that we will exercise those options. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense on a straight-line basis over the lease term.
Operating Leases—The majority of our leases are operating leases. We lease storage tanks, terminal facilities, land, office facilities, railcars, pipelines, barges, plant equipment and other equipment. As of March 31, 2019, our Operating lease assets were $1,534 million. Operating lease liabilities totaled $1,555 million of which $273 million are current and recorded in Accrued liabilities. These values were derived using a weighted average discount rate of 4.5%.
Our operating leases have remaining lease terms ranging from less than 1 year to 30 years and have a weighted-average remaining lease term of 8 years. While extension clauses included in our leases do not materially impact our Operating lease assets or Operating lease liabilities, certain leases include options to extend the lease for up to 20 years.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Maturities of operating lease liabilities as of March 31, 2019 are as follows:
|
| | | | |
Millions of dollars | | |
Last nine months of 2019 | | $ | 255 |
|
2020 | | 295 |
|
2021 | | 247 |
|
2022 | | 211 |
|
2023 | | 183 |
|
Thereafter | | 645 |
|
Total lease payments | | 1,836 |
|
Less: Imputed interest | | (281 | ) |
Present value of lease liabilities | | $ | 1,555 |
|
The following table presents the components of operating lease cost for the three months ended March 31, 2019:
|
| | | | |
Millions of dollars | | |
Operating lease cost | | $ | 90 |
|
Short-term lease cost | | 40 |
|
Variable lease cost | | 17 |
|
Net operating lease cost | | $ | 147 |
|
Cash paid for operating lease liabilities totaled $91 million for the three months ended March 31, 2019. Leased assets obtained in exchange for new operating lease liabilities, including all leases recognized upon adoption of the new lease accounting standard, totaled $1,652 million for the three months ended March 31, 2019.
As of March 31, 2019, we have entered into additional operating leases, with an undiscounted value of $544 million, primarily for storage tanks related to our new PO/TBA plant at our Channelview, Texas facility. These leases, which will commence between 2019 and 2022, have lease terms ranging from 2 to 20 years.
Lease Commitments—As of December 31, 2018, the undiscounted aggregate future estimated payments for our operating lease commitments, including those which have not commenced, and those with an initial term of 12 months of less, were as follows: |
| | | | |
Millions of dollars | | |
2019 | | $ | 365 |
|
2020 | | 288 |
|
2021 | | 256 |
|
2022 | | 236 |
|
2023 | | 204 |
|
Thereafter | | 1,126 |
|
Total minimum lease payments | | $ | 2,475 |
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Financial Instruments and Fair Value Measurements
We are exposed to market risks, such as changes in commodity pricing, currency exchange rates and interest rates. To manage the volatility related to these exposures, we selectively enter into derivative transactions pursuant to our risk management policies.
A summary of our financial instruments, risk management policies, derivative instruments, hedging activities and fair value measurement can be found in Notes 2 and 15 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. If applicable, updates have been included in the respective sections below.
At March 31, 2019 and December 31, 2018, we had marketable securities classified as cash and cash equivalents of $15 million and $19 million, respectively.
Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency gains of $11 million and $6 million for the three months ended March 31, 2019 and 2018, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding as of March 31, 2019 and December 31, 2018 that are measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | |
Millions of dollars | Notional Amount | | Fair Value | | Notional Amount | | Fair Value | | Balance Sheet Classification |
Assets– | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | |
Commodities | $ | 618 |
| | $ | 7 |
| | $ | 472 |
| | $ | 12 |
| | Prepaid expenses and other current assets |
Foreign currency | — |
| | 52 |
| | — |
| | 27 |
| | Prepaid expenses and other current assets |
Foreign currency | 2,000 |
| | 169 |
| | 2,000 |
| | 117 |
| | Other assets |
Interest rates | — |
| | 26 |
| | 600 |
| | 33 |
| | Prepaid expenses and other current assets |
Interest rates | 790 |
| | 3 |
| | 143 |
| | 1 |
| | Other assets |
Derivatives not designated as hedges: | | | | | | | | | |
Commodities | 124 |
| | 2 |
| | 35 |
| | 5 |
| | Prepaid expenses and other current assets |
Foreign currency | 618 |
| | 5 |
| | 599 |
| | 3 |
| | Prepaid expenses and other current assets |
Non-derivatives: | | | | | | | | | |
Available-for-sale debt securities | 258 |
| | 259 |
| | 567 |
| | 567 |
| | Short-term investments |
Equity securities | 161 |
| | 170 |
| | 322 |
| | 325 |
| | Short-term investments |
Total | $ | 4,569 |
| | $ | 693 |
| | $ | 4,738 |
| | $ | 1,090 |
| | |
Liabilities– | | | | | | | | | |
Derivatives designated as hedges: | | | | | | | | | |
Commodities | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | Accrued liabilities |
Foreign currency | — |
| | 33 |
| | — |
| | 17 |
| | Accrued liabilities |
Foreign currency | 950 |
| | 58 |
| | 950 |
| | 75 |
| | Other liabilities |
Interest rates | 1,000 |
| | 53 |
| | 1,400 |
| | 16 |
| | Accrued liabilities |
Interest rates | 1,850 |
| | 41 |
| | 2,500 |
| | 45 |
| | Other liabilities |
Derivatives not designated as hedges: | | | | | | | | | |
Commodities | 129 |
| | 6 |
| | 63 |
| | 14 |
| | Accrued liabilities |
Foreign currency | 234 |
| | — |
| | 1,165 |
| | 7 |
| | Accrued liabilities |
Non-derivatives: | | | | | | | | | |
Performance share awards | — |
| | — |
| | 29 |
| | 29 |
| | Accrued liabilities |
Total | $ | 4,163 |
| | $ | 191 |
| | $ | 6,111 |
| | $ | 203 |
| | |
Commodity derivatives designated as hedges are classified as Level 1. As of March 31, 2019, these commodity derivatives had notional and fair values of $618 million and $7 million, respectively. Our investments in equity securities discussed below are measured at fair value using the net asset value per share, or its equivalent, practical expedient and have not been classified in the fair value hierarchy. All other derivatives and available-for-sale debt securities in the tables above are classified as Level 2.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At March 31, 2019, our outstanding foreign currency and commodity contracts, not designated as hedges, mature from April 2019 to August 2019 and April 2019 to May 2019, respectively.
Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018. Short-term loans receivable, which represent our repurchase agreements, and short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying and fair values of short-term and long-term debt exclude finance leases and commercial paper.
|
| | | | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 |
Millions of dollars | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Non-derivatives: | | | | | | | |
Assets: | | | | | | | |
Short-term loans receivable | $ | 534 |
| | $ | 534 |
| | $ | 544 |
| | $ | 544 |
|
Liabilities: | | | | | | | |
Short-term debt | $ | 2,126 |
| | $ | 2,131 |
| | $ | 71 |
| | $ | 77 |
|
Long-term debt | 7,521 |
| | 7,789 |
| | 8,492 |
| | 8,476 |
|
Total | $ | 9,647 |
| | $ | 9,920 |
| | $ | 8,563 |
| | $ | 8,553 |
|
All financial instruments in the table above are classified as Level 2. There were no transfers between Level 1 and Level 2 for any of our financial instruments during the three months ended March 31, 2019 and the year ended December 31, 2018.
Net Investment Hedges—At March 31, 2019 and December 31, 2018, we had outstanding foreign currency contracts with an aggregate notional value of €617 million ($650 million) designated as net investment hedges. We also had outstanding foreign-currency denominated debt designated as a net investment hedge with notional amounts totaling €750 million ($842 million) and €750 million ($858 million), respectively, as of March 31, 2019 and December 31, 2018.
Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding at March 31, 2019 and December 31, 2018:
|
| | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | |
Millions of dollars | Notional Value | | Notional Value | | Expiration Date |
Foreign currency | $ | 2,300 |
| | $ | 2,300 |
| | 2021 to 2027 |
Interest rates | 1,500 |
| | 1,500 |
| | 2020 to 2021 |
Commodities | 618 |
| | 476 |
| | 2019 |
In February 2019, we entered into forward-starting interest rate swaps with a total notional amount of $1,000 million to mitigate the risk of variability in interest rates for an expected debt issuance by February 2020. These swaps were designated as cash flow hedges and will be terminated upon debt issuance. Additionally, concurrent with the redemption of $1,000 million of our then outstanding 5% senior notes due 2019, we received $4 million in settlement of $1,000 million of forward-starting interest rate swaps designated as cash flow hedges of forecasted interest payments to begin on or before April 15, 2019.
In January and February of 2019, we entered into commodity futures contracts with total notional amounts of $78 million and $97 million to mitigate the risk of variability in feedstock prices and product sales prices, respectively, for the year 2019.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In 2019, we paid $4 million in settlement of commodity futures contracts hedging the risk of variability in feedstock prices with a total notional amount of $67 million. Additionally, we received $6 million in settlement of commodity futures contracts hedging the risk of variability in product sales prices with a total notional amount of $83 million.
As of March 31, 2019, on a pre-tax basis, less than $1 million, $4 million, and $3 million are scheduled to be reclassified from Accumulated other comprehensive loss as a decrease to interest expense, increase to revenues and decrease to cost of sales, respectively, over the next twelve months.
Fair Value Hedges—In February 2019, concurrent with the redemption of $1,000 million of our then outstanding 5% senior notes due 2019, we paid $5 million in settlement of $1,000 million of fixed-for-floating interest rate swaps.
We had outstanding interest rate contracts with aggregate notional amounts of $2,140 million and $3,143 million at March 31, 2019 and December 31, 2018, respectively. These fair value hedges have maturities ranging from 2021 to 2027 as of March 31, 2019.
Impact on Earnings and Other Comprehensive Income—The following table summarizes the pre-tax effect of derivative instruments and non-derivative instruments on Other comprehensive income and earnings for the three months ended March 31, 2019 and 2018: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of Financial Instruments |
| Three Months Ended March 31, |
| Gain (Loss) Recognized in AOCI | | Gain (Loss) Reclassified from AOCI to Income | | Gain (Loss) Recognized in Income | | Income Statement |
Millions of dollars | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | Classification |
Derivatives designated as hedges: | | | | | | | | | | | | | |
Commodities | $ | (50 | ) | | $ | — |
| | $ | (5 | ) | | $ | — |
| | $ | — |
| | $ | — |
| | Sales and other operating revenues |
Commodities | 46 |
| | (3 | ) | | 4 |
| | 4 |
| | — |
| | — |
| | Cost of sales |
Foreign currency | 70 |
| | (125 | ) | | (39 | ) | | 62 |
| | 17 |
| | 13 |
| | Other income, net; Interest expense |
Interest rates | (74 | ) | | 49 |
| | (4 | ) | | — |
| | (34 | ) | | (44 | ) | | Interest expense |
Derivatives not designated as hedges: | | | | | | | | | | | | | |
Commodities | — |
| | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | Sales and other operating revenues |
Commodities | — |
| | — |
| | — |
| | — |
| | 3 |
| | (4 | ) | | Cost of sales |
Foreign currency | — |
| | — |
| | — |
| | — |
| | 19 |
| | (19 | ) | | Other income, net |
Non-derivatives designated as hedges: | | | | | | | | | | | | | |
Long-term debt | 16 |
| | (25 | ) | | — |
| | — |
| | — |
| | — |
| | Other income, net |
Total | $ | 8 |
| | $ | (104 | ) | | $ | (44 | ) | | $ | 66 |
| | $ | 7 |
| | $ | (53 | ) | | |
The derivative amounts excluded from effectiveness testing for foreign currency contracts designated as net investment hedges recognized in other comprehensive income and interest expense for the three months ended March 31, 2019 were gains of $2 million and $5 million, respectively, and for the three months ended March 31, 2018 were gains of $4 million and $5 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The pre-tax effect of the periodic receipt of fixed interest and payment of variable interest associated with our fixed-for-floating interest rate swaps resulted in a $3 million increase in interest expense during the three months ended March 31, 2019 and a $3 million decrease in interest expense during the three months ended March 31, 2018.
Investments in Available-for-Sale Debt Securities—The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of our available-for-sale debt securities that are outstanding as of March 31, 2019 and December 31, 2018: |
| | | | | | | | | | | | | | | |
| March 31, 2019 |
Millions of dollars | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale debt securities: | | | | | | | |
Bonds | $ | 258 |
| | $ | 1 |
| | $ | — |
| | $ | 259 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
Millions of dollars | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Available-for-sale debt securities: | | | | | | | |
Bonds | $ | 567 |
| | $ | — |
| | $ | — |
| | $ | 567 |
|
No allowance for credit losses related to our available-for-sale debt securities was recorded for the three months ended March 31, 2019. No losses related to other-than-temporary impairments of our available-for-sale debt securities were recorded in Accumulated other comprehensive income for the year ended December 31, 2018.
As of March 31, 2019, bonds classified as available-for-sale debt securities had maturities between nine and nineteen months.
We received proceeds of $308 million and $335 million in the three months ended March 31, 2019 and 2018, respectively, from maturities of our available-for-sale debt securities. We had no sales of our available-for-sale debt securities during the three months ended March 31, 2019 and 2018.
The following table summarizes the fair value and unrealized losses related to available-for-sale debt securities that were in a continuous unrealized loss position for less than and greater than twelve months as of March 31, 2019 and December 31, 2018:
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
| Less than 12 months | | Greater than 12 months |
Millions of dollars | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
Available-for-sale debt securities: | | | | | | | |
Bonds | $ | 83 |
| | $ | — |
| | $ | — |
| | $ | — |
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Less than 12 months | | Greater than 12 months |
Millions of dollars | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
Available-for-sale debt securities: | | | | | | | |
Bonds | $ | 118 |
| | $ | (1 | ) | | $ | 45 |
| | $ | — |
|
Investments in Equity Securities—At March 31, 2019 and December 31, 2018, we had investments in equity securities with notional amounts totaling of $161 million and $322 million, respectively. The fair values of these investments were $170 million and $325 million at March 31, 2019 and December 31, 2018, respectively.
The following table summarizes the portion of unrealized gains and losses for the equity securities that are outstanding as of March 31, 2019 and 2018:
|
| | | | | | | |
| Three Months Ended
March 31, |
Millions of dollars | 2019 | | 2018 |
Net gains (losses) recognized during the period | $ | 7 |
| | $ | (1 | ) |
Less: Net gains recognized during the period on securities sold | 1 |
| | — |
|
Unrealized gains (losses) recognized during the period | $ | 6 |
| | $ | (1 | ) |
10. Income Taxes
Our effective income tax rate for the three months ended March 31, 2019 was 19.9% compared with 19.8% for the three months ended March 31, 2018. Our effective income tax rate fluctuates based on, among other factors, changes in statutory tax rates, changes in pretax income in countries with varying statutory tax rates, changes in valuation allowances, changes in foreign exchange gains/losses, changes in the amount of exempt income and changes in unrecognized tax benefits associated with uncertain tax positions.
Compared with the three months ended March 31, 2018, the higher effective tax rate for the three months ended March 31, 2019 was primarily attributable to reduced exempt income, partially offset by changes in pretax income in countries with varying statutory tax rates, changes in foreign exchange gains/losses, and changes in unrecognized tax benefits associated with uncertain tax positions.
We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subjected to review by tax authorities. We are currently under examination in a number of tax jurisdictions. As a result, there is an uncertainty in income taxes recognized in our financial statements. Positions challenged by the tax authorities may be settled or appealed by us. Tax benefits totaling $269 million were unrecognized as of March 31, 2019 and December 31, 2018. It is reasonably possible that, within the next twelve months, due to the settlement of uncertain tax positions with various tax authorities and the expiration of statutes of limitations, unrecognized tax benefits could decrease by up to approximately $105 million.
We monitor income tax developments in countries where we conduct business. In 2017, the U.S. enacted “H.R.1,” also known as the “Tax Cuts and Jobs Act” (the “Tax Act”) materially impacting our Consolidated Financial Statements by, among other things, decreasing the tax rate, and significantly affecting future periods. To determine the full effects of the tax law, we are awaiting the finalization of several proposed U.S. Treasury regulations under the Tax Act that were issued during 2018, as well as additional regulations to be proposed and finalized pursuant to the U.S. Treasury’s expanded regulatory authority under the Tax Act. It is also possible that technical correction legislation concerning the Tax Act could retroactively affect tax liabilities for 2018.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Commitments and Contingencies
Commitments—We have various purchase commitments for materials, supplies and services incidental to the ordinary conduct of business, generally for quantities required for our businesses and at prevailing market prices. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. At March 31, 2019, capital expenditure commitments were incurred in our normal course of business, including commitments of approximately $681 million primarily related to building our new Hyperzone high-density polyethylene plant in La Porte, Texas and a world-scale PO/TBA plant on the Texas Gulf Coast.
Financial Assurance Instruments—We have obtained letters of credit, performance and surety bonds and have issued financial and performance guarantees to support trade payables, potential liabilities and other obligations. Considering the frequency of claims made against the financial instruments we use to support our obligations, and the magnitude of those financial instruments in light of our current financial position, management does not expect that any claims against or draws on these instruments would have a material adverse effect on our Consolidated Financial Statements. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current operations.
Environmental Remediation—Our accrued liability for future environmental remediation costs at current and former plant sites and other remediation sites totaled $93 million and $90 million as of March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, the accrued liabilities for individual sites range from less than $1 million to $16 million. The remediation expenditures are expected to occur over a number of years, and not to be concentrated in any single year. In our opinion, it is reasonably possible that losses in excess of the liabilities recorded may have been incurred. However, we cannot estimate any amount or range of such possible additional losses. New information about sites, new technology or future developments such as involvement in investigations by regulatory agencies, could require us to reassess our potential exposure related to environmental matters.
The following table summarizes the activity in our accrued environmental liability included in “Accrued liabilities” and “Other liabilities:”
|
| | | | | | | |
| Three Months Ended
March 31, |
Millions of dollars | 2019 | | 2018 |
Beginning balance | $ | 90 |
| | $ | 102 |
|
Additional provisions | 7 |
| | — |
|
Amounts paid | (3 | ) | | (2 | ) |
Foreign exchange effects | (1 | ) | | 2 |
|
Ending balance | $ | 93 |
| | $ | 102 |
|
Indemnification—We are parties to various indemnification arrangements, including arrangements entered into in connection with acquisitions, divestitures and the formation and dissolution of joint ventures. Pursuant to these arrangements, we provide indemnification to and/or receive indemnification from other parties in connection with liabilities that may arise in connection with the transactions and in connection with activities prior to completion of the transactions. These indemnification arrangements typically include provisions pertaining to third party claims relating to environmental and tax matters and various types of litigation. As of March 31, 2019, we had not accrued any significant amounts for our indemnification obligations, and we are not aware of other circumstances that would likely lead to significant future indemnification obligations. We cannot determine with certainty the potential amount of future payments under the indemnification arrangements until events arise that would trigger a liability under the arrangements.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As part of our technology licensing contracts, we give indemnifications to our licensees for liabilities arising from possible patent infringement claims with respect to certain proprietary licensed technologies. Such indemnifications have a stated maximum amount and generally cover a period of five to ten years.
12. Stockholders’ Equity and Redeemable Non-controlling Interests
Stockholders’ Equity
Dividend Distributions—In March 2019, we paid a cash dividend of $1.00 per share for an aggregate of $372 million to shareholders of record on March 4, 2019.
In February 2019, we paid a cash dividend of $15.00 per share for an aggregate of $2 million related to dividends on A. Schulman Special Stock to shareholders of record as of January 15, 2019.
Share Repurchase Programs—In June 2018, our shareholders approved a proposal to authorize us to repurchase up to 57,844,016 of our ordinary shares through December 1, 2019 (“June 2018 Share Repurchase Program”), which superseded the remaining authorization under our May 2017 Share Repurchase Program. The timing and amount of these repurchases, which are determined based on our evaluation of market conditions and other factors, may be executed from time to time through open market or privately negotiated transactions. The repurchased shares, which are recorded at cost, are classified as Treasury stock and may be retired or used for general corporate purposes, including for various employee benefit and compensation plans.
The following table summarizes our share repurchase activity for the periods presented:
|
| | | | | | | | | | |
| Three Months Ended March 31, 2019 |
Millions of dollars, except shares and per share amounts | Shares Repurchased | | Average Purchase Price | | Total Purchase Price, Including Commissions |
June 2018 Share Repurchase Program | 5,648,900 |
| | $ | 86.38 |
| | $ | 488 |
|
|
| | | | | | | | | | |
| Three Months Ended March 31, 2018 |
Millions of dollars, except shares and per share amounts | Shares Repurchased | | Average Purchase Price | | Total Purchase Price, Including Commissions |
May 2017 Share Repurchase Program | 1,292,480 |
| | $ | 107.17 |
| | $ | 138 |
|
Due to the timing of settlements, total cash paid for share repurchases for the three months ended March 31, 2019 and 2018 was $512 million and $119 million, respectively.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Ordinary Shares—The changes in the outstanding amounts of ordinary shares are as follows:
|
| | | | | |
| Three Months Ended
March 31, |
| 2019 | | 2018 |
Ordinary shares outstanding: | | | |
Beginning balance | 375,696,661 |
| | 394,512,054 |
|
Share-based compensation | 235,550 |
| | 235,671 |
|
Employee stock purchase plan | 42,792 |
| | 27,179 |
|
Purchase of ordinary shares | (5,648,900 | ) | | (1,292,480 | ) |
Ending balance | 370,326,103 |
| | 393,482,424 |
|
Treasury Shares—The changes in the amounts of treasury shares held by the Company are as follows: |
| | | | | |
| Three Months Ended
March 31, |
| 2019 | | 2018 |
Ordinary shares held as treasury shares: | | | |
Beginning balance | 24,513,619 |
| | 183,928,109 |
|
Share-based compensation | (235,550 | ) | | (235,671 | ) |
Employee stock purchase plan | (42,792 | ) | | (27,179 | ) |
Purchase of ordinary shares | 5,648,900 |
| | 1,292,480 |
|
Ending balance | 29,884,177 |
| | 184,957,739 |
|
Accumulated Other Comprehensive Income (Loss)—The components of, and after-tax changes in, Accumulated other comprehensive loss as of and for the three months ended March 31, 2019 and 2018 are presented in the following tables:
|
| | | | | | | | | | | | | | | |
Millions of dollars | Financial Derivatives | | Defined Benefit Pension and Other Postretirement Benefit Plans | | Foreign Currency Translation Adjustments | | Total |
Balance – January 1, 2019 | $ | (68 | ) | | $ | (442 | ) | | $ | (853 | ) | | $ | (1,363 | ) |
Other comprehensive loss before reclassifications | (19 | ) | | — |
| | (7 | ) | | (26 | ) |
Tax (expense) benefit before reclassifications | 4 |
| | — |
| | (3 | ) | | 1 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | (45 | ) | | 7 |
| | — |
| | (38 | ) |
Tax (expense) benefit | 10 |
| | (2 | ) | | — |
| | 8 |
|
Net other comprehensive income (loss) | (50 | ) | | 5 |
| | (10 | ) | | (55 | ) |
Balance – March 31, 2019 | $ | (118 | ) | | $ | (437 | ) | | $ | (863 | ) | | $ | (1,418 | ) |
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
| | | | | | | | | | | | | | | | | | | |
Millions of dollars | Financial Derivatives | | Unrealized
Gains
on Equity
Securities
and Equity
Securities
Held by
Equity
Investees | | Defined Benefit Pension and Other Postretirement Benefit Plans | | Foreign Currency Translation Adjustments | | Total |
Balance – January 1, 2018 | $ | (120 | ) | | $ | 17 |
| | $ | (421 | ) | | $ | (761 | ) | | $ | (1,285 | ) |
Adoption of accounting standards | (2 | ) | | (17 | ) | | (51 | ) | | — |
| | (70 | ) |
Other comprehensive income (loss) before reclassifications | (61 | ) | | — |
| | — |
| | 37 |
| | (24 | ) |
Tax benefit before reclassifications | 17 |
| | — |
| | — |
| | 3 |
| | 20 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | 66 |
| | — |
| | 8 |
| | — |
| | 74 |
|
Tax expense | (15 | ) | | — |
| | (1 | ) | | — |
| | (16 | ) |
Net other comprehensive income (loss) | 7 |
| | — |
| | 7 |
| | 40 |
| | 54 |
|
Balance – March 31, 2018 | $ | (115 | ) | | $ | — |
| | $ | (465 | ) | | $ | (721 | ) | | $ | (1,301 | ) |
The amounts reclassified out of each component of Accumulated other comprehensive loss are as follows:
|
| | | | | | | | | |
| Three Months Ended
March 31, | | Affected Line Item on the Consolidated Statements of Income |
Millions of dollars | 2019 | | 2018 | |
Reclassification adjustments for: | | | | | |
Financial derivatives: | | | | | |
Foreign currency | $ | (39 | ) | | $ | 62 |
| | Other income, net |
Commodities | (6 | ) | | — |
| | Sales and other operating revenue |
Commodities | 4 |
| | 4 |
| | Cost of sales |
Interest rates | (4 | ) | | — |
| | Interest expense |
Income tax expense (benefit) | (10 | ) | | 15 |
| | Provision for income taxes |
Financial derivatives, net of tax | (35 | ) | | 51 |
| | |
Amortization of defined pension items: | | | | | |
Actuarial loss | 7 |
| | 8 |
| | Other income, net |
Income tax expense | 2 |
| | 1 |
| | Provision for income taxes |
Defined pension items, net of tax | 5 |
| | 7 |
| | |
Total reclassifications, before tax | (38 | ) | | 74 |
| | |
Income tax expense (benefit) | (8 | ) | | 16 |
| | Provision for income taxes |
Total reclassifications, after tax | $ | (30 | ) | | $ | 58 |
| | Amount included in net income |
Purchase of non-controlling interest—In February 2019, we increased our interest in our subsidiary La Porte Methanol Company, L.P., from 85% to 100%, for cash consideration of $63 million.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Redeemable Non-controlling Interests
Our redeemable non-controlling interests relate to 115,374 shares of A. Schulman Special Stock which were outstanding as of March 31, 2019 and December 31, 2018.
13. Per Share Data
Basic earnings per share are based upon the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share includes the effect of certain stock option awards and other equity-based compensation awards. We have unvested restricted stock units that are considered participating securities for earnings per share.
Earnings per share data and dividends declared per share of common stock are as follows:
|
| | | | | | | |
| Three Months Ended March 31, |
Millions of dollars | 2019 | 2018 |
Net income attributable to the Company shareholders | $ | 817 |
| | $ | 1,231 |
|
Dividends on A. Schulman Special Stock | (2 | ) | | — |
|
Net income attributable to participating securities | (1 | ) | | (1 | ) |
Net income attributable to ordinary shareholders – basic and diluted | $ | 814 |
| | $ | 1,230 |
|
| | | |
Millions of shares, except per share amounts | | | |
Basic weighted average common stock outstanding | 372 |
| | 394 |
|
Effect of dilutive securities: | | | |
PSU awards | — |
| | 1 |
|
Potential dilutive shares | 372 |
| | 395 |
|
| | | |
Earnings per share: | | | |
Basic | $ | 2.19 |
| | $ | 3.12 |
|
Diluted | $ | 2.19 |
| | $ | 3.11 |
|
Participating securities | 0.6 |
| | 0.5 |
|
Dividends declared per share of common stock | $ | 1.00 |
| | $ | 1.00 |
|
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Segment and Related Information
In conjunction with our acquisition of A. Schulman in August 2018, polypropylene compounding, Catalloy and polybutene-1, which were previously reflected in our O&P–EAI and O&P–Americas segments, were moved to our Advanced Polymer Solutions segment. All comparable periods presented have been revised to reflect this change.
We disclose the results of each of our operating segments in accordance with ASC 280, Segment Reporting. Each of our six operating segments is managed by a senior executive reporting directly to our Chief Executive Officer, the chief operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the operating results of each of the operating segments for performance evaluation and resource allocation. The activities of each of our segments from which they earn revenues and incur expenses are described below:
| |
• | Olefins and Polyolefins–Americas (“O&P–Americas”). Our O&P–Americas segment produces and markets olefins and co-products, polyethylene and polypropylene. |
| |
• | Olefins and Polyolefins–Europe, Asia, International (“O&P–EAI”). Our O&P–EAI segment produces and markets olefins and co-products, polyethylene, and polypropylene. |
| |
• | Intermediates and Derivatives (“I&D”). Our I&D segment produces and markets propylene oxide and its derivatives; oxyfuels and related products; and intermediate chemicals such as styrene monomer, acetyls, ethylene oxide and ethylene glycol. |
| |
• | Advanced Polymer Solutions (“APS”). Our APS segment produces and markets compounding and solutions, such as polypropylene compounds, engineered plastics, masterbatches, engineered composites, colors and powders, and advanced polymers, which includes Catalloy and polybutene-1. |
| |
• | Refining. Our Refining segment refines heavy, high-sulfur crude oils and other crude oils of varied types and sources available on the U.S. Gulf Coast into refined products, including gasoline and distillates. |
| |
• | Technology. Our Technology segment develops and licenses chemical and polyolefin process technologies and manufactures and sells polyolefin catalysts. |
Our chief operating decision maker uses EBITDA as the primary measure for reviewing our segments’ profitability and therefore, in accordance with ASC 280, Segment Reporting, we have presented EBITDA for all segments. We define EBITDA as earnings before interest, taxes and depreciation and amortization.
“Other” includes intersegment eliminations and items that are not directly related or allocated to business operations, such as foreign exchange gains or losses and components of pension and other postretirement benefit costs other than service cost. Sales between segments are made primarily at prices approximating prevailing market prices.
LYONDELLBASELL INDUSTRIES N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Summarized financial information concerning reportable segments is shown in the following table for the periods presented:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
Millions of dollars | O&P– Americas | | O&P– EAI | | I&D | | APS | | Refining | | Technology | | Other | | Total |
Sales and other operating revenues: | | | | | | | | | | | | | | | |
Customers | $ | 1,393 |
| | $ | 2,343 |
| | $ | 1,852 |
| | $ | 1,338 |
| | $ | 1,743 |
| | $ | 109 |
| | $ | — |
| | $ | 8,778 |
|
Intersegment | 718 |
| | 192 |
| | 42 |
| | 1 |
| | 139 |
| | 32 |
| | (1,124 | ) | | — |
|
| 2,111 |
| | 2,535 |
| | 1,894 |
| | 1,339 |
| | 1,882 |
| | 141 |
| | (1,124 | ) | | 8,778 |
|
Income from equity investments | 11 |
| | 51 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 64 |
|
EBITDA | 516 |
| | 296 |
| | 390 |
| | 148 |
| | (15 | ) | | 83 |
| | 10 |
| | 1,428 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
Millions of dollars | O&P– Americas | | O&P– EAI | | I&D | | |